This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

Americans seeing the light on carbon tax

It's the &quot;green shaft,&quot; a &quot;stupid&quot; idea that would &quot;screw everybody&quot; and &quot;siphon&quot; money out of our wallets. &quot;We must never let it happen to our country,&quot; Prime Minister Stephen Harper said during the fall election campaign.

It's the "green shaft," a "stupid" idea that would "screw everybody" and "siphon" money out of our wallets. "We must never let it happen to our country," Prime Minister Stephen Harper said during the fall election campaign.

He was talking about Stéphane Dion's demonized Green Shift plan, which would tax carbon emissions and use the revenues to lower income taxes. Of course, Harper never mentioned the latter part in his radio and TV attack ads, or when giving public speeches. That would be telling the truth.

So, all that Canadians heard in sound bite after sound bite was that dirty "tax" word repeated over and over, out of context, at a time when oil was $147 (U.S.) a barrel and gasoline was going for $1.35 a litre.

In the end, enough Canadians fell for the fear-mongering and Dion was rejected.

Unfortunately, that rejection tainted the idea of a carbon tax as well, so much so that it would now be political suicide for any party to support, or at least actively promote the idea. It may be a few years before it gets serious attention again on the federal level.

Article Continued Below

Ironically, a carbon tax is beginning to win supporters south of the border and is gaining favour from some unexpected corners as a better alternative to the kind of (watered down) carbon cap-and-trade system Harper supports.

In a commentary published late December in TheNew York Times, two U.S. Republicans slammed the idea of a cap-and-trade system as a type of veiled taxation.

Bob Inglis, a Republican from South Carolina, and Arthur Laffer, a member of former president Ronald Reagan's Economic Policy Advisory Board during the 1980s, argued that a "simple carbon tax coupled with an equal, offsetting reduction in income taxes or payroll taxes" would lay the foundation for a dynamic U.S. energy security policy both Republicans and Democrats could support.

"Fiscal conservatives would gladly trade a carbon tax for a reduction in payroll or income taxes, but we can't go along with an overall tax increase," they wrote.

Sound familiar?

This message from Laffer and Inglis is in line with what former U.S. vice-president Al Gore has urged along with Larry Summers, selected by President-elect Barack Obama to head the U.S. National Economic Council.

Likewise, in December, prominent climatologist James Hansen wrote a letter to Obama urging him to pursue a carbon tax that would be redistributed to citizens in the form of personal tax cuts. Director of the NASA Goddard Institute of Space Studies, Hansen says a cap-and-trade system won't do enough to help the United States achieve its emission-reduction targets.

Under a capped system, the government sets a limit on the level of carbon-dioxide emissions certain industries can release into the atmosphere.

Companies in each sector would receive, or bid for, tradable allowances that give them that right to emit.

A company that emits below its cap can trade its allowance on a carbon trading market to a company that has exceeded its cap. Ideally, the overall cap is lowered over time.

This gives the government control over how quickly it pursues emission-reduction targets.

In principle it sounds like a good system. So, why are so many dumping on cap-and-trade?

Because it's complex, lacks transparency, is vulnerable to manipulation and creates a new layer of bureaucracy — filled with experts, lawyers, traders and accountants — that's likely to result in bloat and inefficiency. It also doesn't do much to influence consumer behaviour, because the financial penalty that's passed along is hidden. Out of sight, out of mind.

"It's like trying to desegregate the University of Mississippi, Ole Miss, in 1962 by letting James Meredith go to night school," writes Thomas Friedman in his book Hot, Flat and Crowded.

A carbon tax, on the other hand, is "simpler, more transparent, and easier to calculate," explains Friedman. "It would cut across the whole economy and could easily be adjusted to ease the burden on at least lower-income workers by lowering or eliminating their payroll taxes."

Certainly the fossil-fuel industry would have a problem with this. Some companies certainly do, but even there the message is changing. To the surprise of many, Exxon Mobil chief executive Rex Tillerson told U.S. legislators last week that a tax on greenhouse-gas emissions was more effective than setting up a cap-and-trade system.

He warned that cap-and-trade would do little but create a "Wall Street of emissions brokers." He's not the first oil executive to express this view. A chief executive of a major oil-sands operator in Alberta privately echoed Tillerson's argument last summer.

Given a choice between Harper's cap-and-trade and Dion's carbon tax plan, he said the preference was clear: Green Shift.

Now, we can talk all we want about how efficient the markets are, but wasn't it Wall Street that got us into the economic mess we're in? And aren't the traders and brokers the ones who brought volatility to oil prices, so much so that fundamental metrics like supply and demand no longer dictate what we pay for crude?

Dion, for all his faults, was on to something. But he failed to get it through the front door in Canada. If the U.S. ends up embracing such a bold yet sensible plan, perhaps it will eventually enter Canada through the back door when Harper — assuming he's still around — isn't looking.

More from the Toronto Star & Partners

LOADING

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com